Max Smock: Hey. Good morning. Good afternoon. Thanks for taking our questions. Just a couple of quick ones for me here. So on direct fee versus pass-through revenue, I think it’s been a couple of quarters now where pass-through revenue has been a pretty meaningful headwind on the topline. Just wondering if you can give us direct fee revenue growth in total for 2023 versus pass-throughs and then what you have embedded for each of these buckets in the topline guide for 2024. Now let’s go ahead and ask my follow-up since it’s related. How much of the margin improvement this year came from that mixed shift to direct fee revenue and then how are you thinking about the impact margins from this potential mixed shift in 2024? Thank you.
Brendan Brennan: Max, I’ll maybe give it a crack in terms of the 2022 over 2023 piece. Obviously, we’ve talked about direct fee being more on the high-single digits. And as you can see, well, you obviously can read what we did from a pass-through inclusive number for the full year. So, yes, there was a continued headwind from pass-throughs as we came through the course of 2023. That has been somewhat of the consequence of the kind of vaccine and then moving more towards our more traditional, let’s call it, therapeutic mix of more oncology, more orphan-type therapies that have longer durations and so we’ve seen that as a headwind over the last couple of years. It’s not peculiar to 2023. We do feel like we’re coming, we’re getting to the shorter yards on that.
We talked about our — the mix of that probably still being, to some extent a headwind as we go into 2024, but not to the same extent as we’ve seen in 2023 particularly. And we’ve also talked about, our expectation around our COVID, non-COVID mix is probably not dissimilar in the 3% to 4% range both in 2023 and in 2024. So, yeah, we would like to think it will step down a little bit in terms of a headwind as we go into 2024, but of course, we’ll see how that plays out during the course of the year and we’ll give you more granularity on that as we go through. The second part of the question. Sorry, I didn’t scribble it down.
Dr. Steve Cutler: Mix shift.
Brendan Brennan: We talked – yeah. Exactly. We’ll give you — I think, as we go through the course of the year, that mix shift will give you a bit more granularity.
Max Smock: Sounds good. Thank you.
Operator: Thank you. We’ll now take our next question and this is from the line of Ann Hynes from Mizuho Securities. Please go ahead.
Ann Hynes: Hi. Good morning. I just want to focus on capital deployment. I know in your prepared remarks, you talked about M&A. Do you have unannounced M&A in your guidance, would be my first question. My second question would be maybe types of assets you’re looking for that maybe you need to bulk up and then with the share repo, that’s not — I know that’s not in guidance and how do you balance M&A versus share repo for this year?
Dr. Steve Cutler: Okay. The answer to your question is no. And your first question, anyway, we don’t have any M&A in our guidance. So just to be clear on that. In terms of…
Ann Hynes: New M&A, sorry, the new M&A, the previously announced M&A obviously is in there from Phillips and…
Dr. Steve Cutler: That’s right. Yes. Yes. Yes.
Ann Hynes: Yeah.
Dr. Steve Cutler: That’s in there. Yeah. Previously announced, yes, but there’s nothing new in there. In terms of how we’re looking at share buyback, we’re at kind of a pivotal point with the organization. We’ve done, I think, a very good job in paying down our debt. We’re 2 times adjusted EBITDA. Now that’s a good place to be. And quite frankly, we want to be – we want to remain within kind of 1.5 times to 2.5 times. So as we – we have some potential — we’re still going to make another payment this quarter in terms of our debt. We’ll be working hard to restructure that and get ourselves into a situation of certainty on what our interest payments will be and we’ve talked about the $100 million improvement or reduction in interest rates fees for 2024 versus 2023.
And as we do that, we will remove — particularly as we get towards the second half of this year, the M&A area is becoming much more important, and so we’re actively looking at the moment, because these things take a little time, at a number of areas on the M&A front. We’ve talked about building our Accellacare site network and being stronger in that space. The labs represent an opportunity for us, whether it be in the specialty labs or the central lab. So, our lab is not within the top three at the moment. We’d like to be within the top three. And so we see some opportunity there. And then there are some other around sites and patients and services around concierge services, around even areas like devices. There are a number of areas we’re looking at very hard for an M&A and that’s remain — as we get and restructure our debt and move forward with that, the M&A becomes our priority for capital deployment.
The share buyback is there, and we’ve — as I say, received authorization from the Board to do that and we’ll deploy that. We’ll use that as and when we see fit opportunistically. And particularly if we don’t find anything on the M&A front that we feel we can execute effectively and at a reasonable price. But at the moment, we feel there are some opportunities out there to buy organizations and capabilities that really fit with our organization, that fit with our capabilities and really allow us to prosecute clinical trials faster, better and more efficiently for customers and that remains the absolute priority.
Ann Hynes: Great. And just on your revenue guidance, there is a wide range and can you just go through what gets you to the low end and what gets you to the high end or the big variant factors?
Brendan Brennan: Yeah. I’ll take that, Ann. There is a wide range and we’ll be narrowing that as we go through the course of the year, without doubt, and we may even think about that in quarter one or quarter two. I think we’re still looking at a market, certainly, when we set the guidance, that will have some element of uncertainty in it and we were trying to really reflect that. There are obviously some opportunities. Steve made reference to the fact that there could be some additional vaccine work that could burn quickly through that and that might help us to get up into the higher end of the range, and likewise, there’s always the risk of cancellations in this nature of the business. That’s just the nature of the world, right?
So as we get more certainty, certainly, we’ll be narrowing that range as we get into the year. But certainly, I would always say to people when asked, midpoint is as good a place as any, right? So if you’re trying to do your modeling, that’s where I’d send you to.
Ann Hynes: Okay. Great. Thanks.
Operator: Thank you. And we’ll now take our next question. This is from the line of Jack Wallace from Guggenheim Partners. Please go ahead.
Jack Wallace: Hey. Thanks for taking my question. I’ll keep this brief. I was just wondering given the market dynamics and the pressures facing your customers, particularly the largest ones, if there’s any incremental appetite utilizing risk-based monitoring and if we’ll follow up to that if some of your investments in AI could be an accelerator for that? Thank you.
Dr. Steve Cutler: Okay. So, Jack, as I understand your question, is there any incremental appetite for risk-based monitoring based on some of their financial challenges? I mean, I wouldn’t necessarily associate risk-based monitoring with financial challenges. I mean, risk-based monitoring is part of what we do on a normal basis now, where we focus our attention and our resources on sites or patients or areas of the data collection process that has the greatest risk and we use particularly offsite and our IT technology, some of our newest IT technology, to identify data that perhaps needs further scrutiny. And it is a more efficient way of doing it. So to that extent, we’re spending our customers’ dollars more effectively and more efficiently. But I think of it in those terms rather than as a cost reduction way of doing things. It’s just a more effective way of deploying dollars around the clinical monitoring process is what I’d put it. Is that antiquated?
Jack Wallace: On the risk. Yeah. No. That does. I appreciate it. Thank you.
Dr. Steve Cutler: Yeah. Yeah.
Operator: Thank you. We’ll now take the next question. This is from the line of Dan Leonard from UBS. Please go ahead.
Dan Leonard: Thank you. Just a couple of cleanups. First off on the COVID work, can you remind me what percentage of your backlog at this point is COVID and how you expect sales to trend in 2024?
Kate Haven: Hey, Dan. They’re well aligned in terms of the backlog and the percentage of revenue in that range of 3% to 4% for the full year.
Dan Leonard: Thank you. And the other cleanup, can you give an acquisition sales contribution figure in the quarter? If you did, I missed it, from the deals you’ve already announced and then how much is in that 2024 guide?
Brendan Brennan: Oh! It’s not huge. I mean, it’s circa 10 in the quarter. It’ll be in that ballpark for the quarter. It’s not far off.
Dan Leonard: Thank you.
Operator: Thank you. We’ll now take the next question. This is from the line of Derik De Bruin from Bank of America. Please go ahead.
Mike Ryskin: Hey. Thanks for taking the question. This is Mike Ryskin on for Derik. Same thing, a couple minor cleanups. One is just, could you clarify exactly what the pricing assumption is for 2024? I know you talk about price qualitatively, but if you could quantify it. And then also on the interest expense, the $100 million year-over-year, all that makes sense and you talked about some of the payments coming over the course of the year, but just anything on pacing as we go through the year, just from modeling, when should we – when and how should we pace that through the year? Thanks.
Brendan Brennan: On the pricing piece, Mike, it very much depends. There’s no straight answer to that one. Of course, we have inflationary increases in most of our contracts and we have those negotiations with our customers at the start of the year. They obviously follow CPI Index in terms of inflationary pieces. So that’s a conversation that happens every year. It’s progressing around this time of the year again, but each new business will depend on the individual customer. And on the $100 million of, I mean, I would say, probably, more back-ended. We want to try to get all this sorted out in H1. So I would say, stepping down quarter-by-quarter, but probably more dramatically in the second half.
Mike Ryskin: Thanks, guys.
Operator: Thank you. And we have one more question. This is from the line of Casey Woodring from JPMorgan. Please go ahead. Great.
Casey Woodring: Great. Hi. Thank you for squeezing me in. A lot’s been asked, but I wanted to follow up on the strategic partnership questions. Just wondering how many of those types of partnerships you have now and is there a way to size this new opportunity that you called out this quarter and then the total opportunity of those partnerships in aggregate? And then also just what gives your full service offering a competitive advantage in winning those types of partnerships? Thanks.
Dr. Steve Cutler: Just a minor question at the end there, Casey. Is it competitive advantage of us over the industry? Let me start with the strategic partnership. We’re not ready to sort of size it at that stage. We think of these things as being ultimately at least at the sort of $200 million in revenue annually. That’s what our expectation is, as you become a strategic partner with a top 20, top 30 pharma company. I don’t have a number for what the entire strategic partnerships give us, at least not on the top of my head. We are what we would call strategic with a significant majority of the top 20 pharma companies at the moment. I think we talked about when we got together with PRA 18 months ago or so, 20 months ago. I think we had 13 on.
We’ve advanced that by several now. It’s something like 16 or so. So we’ve made some significant progress. And importantly, there are a number of companies, while we haven’t necessarily signed an MSA or become a strategic partner, we are talking to them and we are getting opportunities from them. Often this is a process that can take a year or two, not just to win the partnership or to be considered a strategic partner, but ultimately as the business ramps up with it. So these are things that aren’t going to have an immediate impact on our revenues. But we are seeing certain opportunities. I am, to be quite honest, starting to drive those RFP improvements that I talked about. In terms of competitive advantage, we are a scale player now and our union with PRA, that is now 20 months ago has — more like 30 months ago, in the middle of 2021, has made a major contribution to that.
I would say the people that we brought on have made a major contribution to our organization. And as a scale player within the clinical development space, we have the technology, we have those resources, that depth and breadth of capability, we have the platforms, the decentralized platforms, and that really gives us a ticket to the table pretty much every time now. So there are very few of these sort of partnership discussions where excluded from, whereas I can certainly look back five years ago and say we probably didn’t make it to the table in a number of instances. So that has changed now in terms of specific advantages over our bigger competitors. I would say our site network is one that gives us some opportunity and I think the technology that we have and that we have been able to deploy around our site network, be it OneSearch or some of the technology that we have been public about as well, has also given us some advantage over that.
And then you look at the mix of services we have, our functional services group is a significant one, our full service is a significant one, the focus that we have in the biotech segment, all of those things I think are important as we contemplate strategic partnerships with large companies and as we compare ourselves against our competitors, our larger competitors. Everyone has something and in our business it’s a multifactorial sort of deal. There’s no one sort of key advantage that puts you ahead, there’s no intellectual property or anything like that for us unfortunately. We have to rely on our wits and our brains and the decisions we make in a number of factors, even down to the project manager who runs the project. So there are lots of things that are important for us as we go up, whether it be a strategic partnership or a normal project, but they’re all important and we think we compete very well in that space now.
Casey Woodring: Thank you.
Dr. Steve Cutler: Okay. So I think, thank you, Operator. I think we’re done with the questions. Appreciate the input and the questions from everyone. So thank you for joining the call today, your continued interest — and for your continued interest in ICON. We’re excited, certainly very excited for the opportunity ahead. We believe we’re at a really pivotal point in our company’s development now and I think that’s been evidenced by some of the things we’ve, some of the comments we’ve made today around those strategic partnerships and the opportunities that we have going forward. So thank you for the questions and have a good day.
Operator: Thank you. This concludes the conference for today. Thank you for participating and you may now disconnect. Speakers please stand by.
